No improvement without digitalization - Part Two

2018.08.09. 08:00 | Hírek

There are many publications nowadays about the need to change to digitalization. But how does it change financial administration and how prepared are the Hungarian banks and society for such changes? We investigated this question with Bancard Ltd. experts.

The Hungarian Development Bank (MFB) investigated Hungarian companies in the Autumn of 2017 including the requirements of handling loans. At that time Hungarian companies explicitly agreed in not attaching great importance to digital administration. Based on this, there is a likely connection between Hungarian companies not insisting on digital administration and their lag in shifting to digitalization.

The investigation showed, however, that when it comes to loans, speed and high guarantee is important for them, both of which would be indirectly affected by digitalization. Interestingly, while economists have needs that could be fulfilled by digitalization, they don’t seem to be open to digitalization itself. This is partially a question of education but the actual reason behind is the lack of proper application of digitalization in their own business area, despite the long existing need of improving efficiency.

MFB mentions in its publication that through digitalization SME sector could be linked to financing professionals and tender facilitation services, and by that it could offer complex financial solutions for resource intensive micro-, small- and medium-sized enterprises. Digitalization would also help joining e-government services. Through production, supply, marketing, in-house relations and automation, digitalization results in faster, cheaper and more precise communication and work. This improves production and working efficiency.

One of the most important direct effect of digitalization on companies is the reconstruction of workplaces. Although tasks that can be automatized have long been replaced human resources, according to estimations of McKinsey professionals the remaining tasks could be reduced by 45%. The McKinsey is analyzing the effects of automation on workplaces. The analysis of effects is categorized in three groups.

The first group contains food retailers and clothing traders. Shifting to the digital model is the less likely in this group given their consumption patterns. Namely, consumers prefer to see, touch and try the products before buying them. In this group 20% turnover could be transferred to the digital space in the medium term. This process has long been started in Hungary, with GRoby being the first franchise followed by the real breakthrough by Tesco, with the introduction of home delivery.

In the second group we find companies, including banks, that sell non-physical products. Here digitalization is more likely to be introduced, reallocating one third of turnover to the digital space along with about 20% reduction of costs.

The biggest effect of digitalization is expected in the third group in which two third of the services could be involved in the coming years. These include the retail of music, electronics, and other consumer products along with sales of airlines and hotels.

What about Hungary in regards of digital maturity? We investigate this question in the next part of our article series.